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Ozzie Memo Strives to Show Microsofts On-Demand Vision

Updated: Microsoft releases internal memos from Bill Gates and CTO Ray Ozzie to show that the company is developing a wide-ranging strategy that can respond to the opportunties and challenges of software as a se

Apparently stung by lukewarm response last week to its Microsoft Live software-as-a-service announcements, Microsoft Corp. Wednesday released two internal memos written by Chairman Bill Gates and Chief Technology Officer Ray Ozzie. The documents sought to demonstrate that the company has a far-reaching vision to respond to this latest market challenge.

Microsoft announced its Windows Live and Office Live, which are suites of Internet-based search, communications, security, information, presence and collaboration services.

However, industry analysts were also surprised last week when Microsoft disclosed that it was not going to introduce Microsoft CRM 3.0 as a software service to counter a growing number of competing hosted customer relationship management companies led by the likes of Salesforce.com, NetSuite Inc. and Siebel Systems Inc.

Instead, Microsoft officials said it will allow industry partners to offer CRM 3.0 as a hosted service. That prompted some industry observers to question whether Microsoft was turning a blind eye to an important business trend. They also questioned whether Windows Live and Office Live were a strong competitive response to the challenges posed by Google Inc. and Skype Technologies S.A.

Gates, in his memo, said the "coming services wave will be very disruptive. We have competitors who will seize on these approaches and challenge us." Microsofts goal will be to "build our strategies around Internet services and we will provide a broad set of service APIs and use them in all of our key applications."

In his 5,000-word memo to Microsoft employees, Ozzie concedes that Microsoft missed opportunities to seize the initiative in key technologies that supported the development of the software-as-a-service business model and presented an outline of the strategy the company will follow to try to catch up.

"We should have been leaders with all our Web properties in harnessing the potential of AJAX, following our pioneering work with [Outlook Web Access]," Ozzie wrote. AJAX (Asynchronous JavaScript and XML) allows immediate updates of Web page data and is a basic technology that enables users to run business applications on browser pages.

"We knew search would be important, but through Googles focus they have gained a tremendously strong position," he wrote. The RSS news feed protocol and the dominance of Adobe PDF as an Internet file distribution format were also cited as missed opportunities.

Ozzie said there are three key tenets that Microsoft intends to embrace as it responds to basic shifts in the industry landscape that are all related to online services and advances in Internet and computer technology.

"The power of the advertising-supported economic model" will provide a new way to "directly and indirectly fund the creation and delivery of software and services," he wrote. Ozzie contends that its possible "to obtain more revenue through the advertising model than through a traditional licensing model."

The Internet is driving a "grassroots technology adoption pattern" that is changing how products are marketed both in consumer and enterprise markets. "Its now expected that anything discovered can be sampled and experienced through self service and exploration and download," he wrote.

With all the computing device forms that are available, such as desktops, laptops, PDAs, cell phones and set-top boxes, people expect to get "integrated user experiences" where everything "just works," Ozzie observed in the memo.

To respond to these tenets and customer demands, Ozzie stated that Microsoft will focus on delivering highly integrated, "seamless" technologies and services that strive to give customers what they want, when they want it. Microsoft will strive to provide a seamless experience in just about all of its product areas, including operating systems, entertainment, communications, productivity, marketplaces, IT management and business solutions.